Hendricks: Texas low in financial literacy

Texas ranks among the bottom 15 states in financial literacy and financial behavior, according to a combination of recent surveys.

Is this a surprise?

Whether it is or not, the state must brace for the consequences: a large percentage of working people who are unprepared for retirement and students who have no resources for college.

From the financial literacy surveys, Texans largely do not understand the basics about interest rates, mortgages and investments. In behavior, Texans are not saving sufficiently for rainy days or retirement, and they're not checking their credit reports.

Ten states rank in the bottom 15 in both categories. Texas is joined by Louisiana, Mississippi, Arkansas, Tennessee, West Virginia, Alabama, Ohio, Kentucky and Indiana. Texas officially is ranked No. 39 in financial literacy out of 51, counting Washington, D.C., and 44th in financial behavior.

Among the best were Northern states, such as New Hampshire, Minnesota, Idaho, Washington, Colorado, Wisconsin and Utah.

It's a sensible, established fact that people with high levels of financial literacy find ways to reach retirement with better resources.

Too many workers do not understand how much responsibility is being placed on them by shifts in corporate practices. Companies are abandoning annuity-like pension plans, in which workers have no decisions to make. Employers are shifting to contribution plans, like 401(k)s, in which employees not only must decide how much to contribute as their share but also how to invest.

Many companies are terminating their pension benefits as quickly as possible by selling their programs to financial companies that offer retiring workers lump sum benefits in lieu of monthly payments. That becomes a complicated decision for employees, some of whom may invest their lump-sum payments badly.

Texas, the nation's second-most-populated state after California, is headed down a road toward social problems if workers are not handling paychecks with proper foresight and do not understand investment fundamentals.

Amid the ongoing tug of war over public school curriculum, financial literacy traditionally has been a low priority. Programs by Junior Achievement, accountant organizations and others funded privately help, but it's not enough.

If financial literacy is not going to become a Texas public school priority, then where can people obtain guidance?

Employers could be one option. Small-company owners may not be in business to educate workers on financial matters. But if they truly value their employees and want them to feel loyal to their jobs, then financial literacy education could become one benefit.

There are programs to help those in the military who are just starting families and households, helping them avoid payday lenders, for example. Similar programs could be adapted for private-sector workers, too.

Chambers of commerce could set up teams to provide company-owning members with financial literacy programs.

In Texas, too many workers are learning about financial matters the hard way, from their mistakes. This should be recognized and addressed.

David Hendricks is a columnist and reporter for the San Antonio Express-News.

More Information

How financially literate are you?

Sample questions from financial literacy surveys:

Suppose you had $100 in a savings account, and the interest rate was 2 percent per year. After five years, how much do you think you would have in the account if you left the money to grow?

a) More than $102 b) Exactly $102 c) Less than $102

Imagine that the interest rate on your savings account was 1 percent per year, and inflation was 2 percent per year. After one year, how much would you be able to buy with the money in this account?

a) More than today b) Exactly the same

c) Less than today

A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage, but the total interest paid over the life of the loan will be less.